Labour Cartels

A labour cartel is an anticompetitive arrangement between two or more groups in the labour market that seeks to distort the price of labour from that which would exist if the market were free of their intervention.

The action of a labour cartel is akin to anti-trust collusive practices that seeks to artificially fix the price of labour – often to prevent rival companies entering the market. A labour cartel is as much an unfair practice in relation to the price of labour as a cartel between two companies would be in fixing the price of goods. It is against the interests of non-colluding companies and the ultimate consumer who must pay the higher costs incurred during the production of goods and services they consume.

A labour cartel is without doubt an entity that should be unlawful, but unfortunately it is often supported and encouraged by governments.

If your company operates in France, for instance, then you will be aware that in almost every sector of the economy there are collective agreements. These agreements are normally negotiated by a minority of established companies with one or two unions. Unions only represent 8% of the French workforce, so they are certainly not representative of employees in general. Once concluded, the French government has given itself the legal powers to, in effect, rubber stamp the agreement and make it mandatory across the entire sector. This therefore allows a few companies to collude with unions to make the majority of companies pay well above the natural market rate – thus driving out competition from inwardly investing or smaller companies.

Of course, there may be over-riding social justifications for pricing the cost of labour above the market rate. This is in the case of minimum wage legislation and where laws seek to achieve pay parity between male and female employees. It may also be claimed that certain responsible positions should be paid above the rate for their skill level because a higher level of pay would reduce the temptation to act corruptly, or encourage the taking of greater risks. But such actions would always be limited and the pay levels may be even justified by factors such as “accountability” and “problem solving “in established job evaluation schemes.

Although labour cartels have not been declared as unlawful by the European Court of Justice, there have been several cases in the USA where anti-trust arguments have been raised about the cost of labour. One example is the Uber-Meyer case in 2016 where a customer sought to establish that if Uber drivers were independent, then the setting of rates charged by cab drivers controlled by Uber amounted to an anti-trust infraction. From another perspective, a 2018 Harvard Law Review Article “Antitrust Remedies for Labor Market Power” it is argued that employers use their market power to drive down wage rates. This, it is argued, is even more evident when employers are geographically concentrated with a captive labour supply.

Another way that governments can take a more central role in anti-trust labour practices is in the issue of work permits, In the USA limitations placed on H1-B visas for highly skilled workers has stemmed the influx of IT specialists, especially from the Indian sub-continent. The effect of this is to push up the cost of labour for IT specialists even more than their previous shortage had done. The government is thus colluding internally between the departments of labor, justice and immigration to raise the price of labour for such specialist against the public interests.

Freelancers and Anti-Trust

A Japan Fair Trade Commission (JFTC) report published in February 2018 raises a growing area of concern for HR professionals in the field of anti-trust behaviour. Their concern is that the growth of self-employment is leading to companies – and especially talent agencies – to collude in order to limit the freedom of contractors and determine the fees they can charge.  They are also concerned about the dangers of hirers that are large and/or powerful using their market power to limit access to work, or limit the bargaining power of individual contractors or require contractor not to reveal hiring terms to other contractors.

So far the JFTC concerns are not crystalised into legal form and case law remains absent, but it is only a matter of time until restrictions governing the hiring of service providers is put to parliament. This could also have knock-on effects to other HR practices such as general talent management practices and even sectoral collective bargaining. In the Japanese entertainment industry the often brutal actions of agencies has led to the formation of the Japan Entertainers’ Rights Association – a trade union for contractors providing services to TV and other media.

For further information about pay determination and labour relations around the world please contact the Federation of International Employers (FedEE®) at admin@fedee.com.